Concept

Money as we know it is made from promises, specifically bank promises, in the form of bank account balances. Ripple's goal is to make your promises as useful for paying people as bank promises are.

To start with, let's look at what happens if you tried to use your own promise as money. Suppose you went to the store and tried to pay with an IOU. This might work, except for two things:

The store owner may not know you are trustworthy.

Even if the owner trusts you, many others don't, so she can't use your IOU to buy things.

Ripple solves the first problem by finding one or more people who can exchange your IOU for one issued by someone the store owner trusts. For example, if the store owner trusts your friend Alice, and Alice trusts you, you can give your IOU to Alice, and Alice can give her IOU to the owner. This can all happen instantly over the internet.

The cool thing now is that the store owner can actually use Alice's IOU to buy things, because Ripple can convert it into IOUs that are useful for paying other people. That solves the second problem.